The spontaneous outbursts of criticism and condemnation of the tax proposals in the budget by all and sundry no sooner the finance minister read it out in parliament made me recollect the famous saying of Benjamin Franklin: "Only two things in the life are certain-death and taxes" and a tax payer's exasperated outburst: "What the tax payer resents is that they don't come in that order".
What was wrong with the finance minister's "Best Budget" prepared after a series of dialogue and exchange of views with the various stakeholders that it faced such strong and severe criticism? First, the distance between the actual expenditure of 2016-2017 and the target of Tk. 4,000 billion (400,000 crore) for 2017-2018 was too long to cover in one jump. Secondly, of the proposed additional revenue collection of Tk. 694.40 billion (69,440 crore), the National Board of Revenue (NBR) share was Tk. 631.90 billion (63,190 crore), an increase of 30 per cent over the Revised Budget and 90 per cent of the additional revenue collection.
It was a difficult assignment. The challenge to the finance minister was to come up with a financing package for the huge outlay in 2017-2018 acceptable to the tax payers and Parliament. Of the two sources of taxes, namely, Direct and Indirect, the Direct tax rates and the surcharge thereon for individuals' sky rocketed during the last 3-4 years could not take any further beating. The avowed policy of gradual reduction of corporate tax rates to stimulate private investment also could not be reversed. Therefore, the bulk of the additional tax collection of Tk. 730 billion (73,000 crore) in 2017-2018 fell on indirect taxes like VAT, Excise, Customs and Supplementary Duty.
This is the genesis of a single and uniform VAT of 15 per cent in the budget proposals. The business community at large had strongly opposed the proposed 15 per cent VAT and rumour was afloat that the single and uniform VAT rate would be reduced to 12 per cent. The economists also expressed the view that such a high VAT rate could fuel inflationary pressure. But the finance minister faced with the problem of financing a mammoth budget of Tk. 4,000 billion (400,000 crore) could not accept the compromise rate of 12 per cent.
The proposed increase of Excise Duty on bank balances ranging from Tk. 800 to Tk. 25,000 from the present rates of Tk. 500 to Tk. 15,000 also came under strong criticism. The finance minister argued that he had proposed a nominal increase over the existing rates of Excise Duty on bank balances. I tend to agree with this view. Increase from Tk. 500 to Tk. 800 in Excise Duty on bank balances up to Tk. 1.0 million (10 lakh) does not call for such serious opposition.
Heavy dependence only on Tax Revenue to support the entire domestic finance of the giant-size Budget was possibly too ambitious. The domestic sources for raising the additional Tk. 694.40 billion (69,440 crore) should have been more diversified. For instance, Capital Receipts from sale of assets is estimated at only Tk. 710 million (71 crore). This could be more than Tk. 40 billion (4,000 crore) if any one of the three government-owned banks like Agrani, Janata and Rupali were up for privatisation. In 2005, the then government invited offers to divest government shareholding in Rupali and the best offer of Tk. 30 billion (3000 crore) came from a Saudi Prince. A distant second was a consortium of banks headed by me. The 16 textile units of BTMC should have been sold outright instead of keeping them under government operation under a public-private partnership (PPP) arrangement. Plan to construct 13 new buffer godowns and a Urea Formaldehyde-85 (UF-85) plant in different districts of the country for ensuring fertiliser preservation and distribution facilities could easily be funded and managed by the private sector.
The government should also consider issuing an open-ended tax-free bonds at 6.0 per cent rate of interest which would be more popular than the Savings Certificates where the investment limit is only Tk. 3.0 million (30 lakh). Under Section 19C of the Income Tax Ordinance 1984, investment by any person in the purchase of bond under Bangladesh Infrastructure Finance Fund between 01st day of July 2010 and 30th day of June 2012 would attract 10 per cent tax and source of funds would not be questioned. The operation of the section should be revived.
Use of black money to balance the Budget will help the honest citizens to balance their Budget - an equitable proposition. The finance minister should seriously consider reduction of VAT from 15 per cent to 12 per cent.
The writer is the first Finance Secretary of Bangladesh.